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In an early mixed valentine for both the government and a defendant Medicare Advantage Plan insurer, a district court in California on February 12 denied a motion to dismiss reverse FCA claims alleging the failure to correct known invalid diagnosis codes submitted for risk adjustment payments to Medicare. The court did dismiss, however, the government’s claims that the insurer’s false statements as to the validity of the diagnosis codes also violated the FCA. Poehling v. Unitedhealth Group, Inc., No. 2:16-cv-08697 (C.D. Cal. Feb. 12, 2018).

As a private insurer under Medicare Part C, the government paid defendant UnitedHealth for each Medicare beneficiary enrolled in UnitedHealth’s Medicare Advantage Plan, with the exact amount determined by the beneficiary’s medical status. In other words, the more serious the patient’s condition based on a series of risk adjustment factors tied to diagnostic data, the more money Medicare was to pay to insure the patient. The government here alleged that UnitedHealth not only submitted hundreds of thousands of invalid diagnoses (qualifying the patients for those higher payments), but also that UnitedHealth later discovered these inaccuracies and failed to correct them, thereby allowing UnitedHealth to retain the higher corresponding fees from Medicare. That knowing retention of fees made up the alleged reverse false claim. In addition to alleging that UnitedHealth submitted invalid diagnostic data, the government also alleged UnitedHealth submitted annual certifications that falsely certified the validity and accuracy of the submitted diagnostic codes. These “Attestations” comprise the false statements portion of the government’s complaint against UnitedHealth.

The government had urged a reading of the FCA that would render the false statements and the reverse false claims as separate and distinct violations of the FCA. The court was not swayed, ultimately holding that the Attestations on their own were not material under Escobar. The court pointed to the government’s failure to allege that the decision by Medicare to pay the risk adjustment claims was directly affected by the Attestations. Indeed, the court noted that the government itself viewed the Attestations primarily as a “reminder” to the insurer to submit valid data and a “deterrent” against submitting false diagnosis codes, and which if were known to be false, would have caused the government to consider its “option to decline to pay.” With the causal piece of the materiality puzzle missing, it was of little importance to the court that UnitedHealth had a regulatory and contractual obligation to submit truthful Attestations to Medicare and, accordingly, the court dismissed claims related to those Attestations with leave to amend. This past Monday, the government notified the court that it would not file an amended complaint.

The outlook for the government did get rosier once the court turned to the reverse false claims. UnitedHealth had claimed in its motion to dismiss that the invalid diagnosis codes themselves also were immaterial to the government’s payment decision because the government would have “automatically” adjusted the payments if UnitedHealth had deleted the codes. Put another way, UnitedHealth argued that an automatic obligation to repay can only establish a per se standard of materiality, which was rejected by Escobar. While finding UnitedHealth’s argument “logically persuasive,” the court held that the government had adequately pleaded that the submission of the invalid diagnosis codes affected the government’s risk adjustment payments in this case. By implication, the court suggested that an “automatic” obligation to repay money owed to the government, without more facts describing how the defendant’s actions affected the government’s payment decision in that case, may not be sufficient to show materiality for a reverse false claim.

In challenging the materiality of diagnostic codes and Attestations, UnitedHealth made much of the fact that the government continued to make risk adjustment payments despite knowledge that UnitedHealth was improperly reviewing its patients’ charts for diagnosis codes. But the court was not troubled by the fact that the government had some generalized knowledge of UnitedHealth’s practices. Rather, the court relied on post-Escobar precedent in the Ninth Circuit (which we have written about here and here) to caution against relying too heavily on the government’s continued payment, and held that without actual knowledge of specific invalid diagnoses, the government’s general suspicions about whether UnitedHealth was complying with its requirements to submit accurate diagnoses and Attestations were not to be viewed as significantly affecting the materiality assessment. Accordingly, because the government could not identify which specific diagnoses were valid and which were not, its continued payment despite generalized knowledge of UnitedHealth’s problematic diagnosis codes did not negate the materiality of the invalid diagnosis codes on the government’s payment decision.

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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